Caterpillar Takes $580 Million Charge After ‘Misconduct’

By Jack Kaskey -
Jan 18, 2013

Caterpillar Inc. (CAT), the world’s
largest maker of construction and mining equipment, said it will
take a $580 million writedown after discovering accounting
“misconduct” at a Chinese unit acquired last year.

The non-cash goodwill impairment charge will reduce fourth-
quarter earnings by about 87 cents a share, Peoria, Illinois-
based Caterpillar said yesterday in a statement. Senior managers
at Zhengzhou Siwei Mechanical & Electrical Manufacturing Co. who
were found to be responsible for the “deliberate, multi-year,
coordinated accounting misconduct” were removed and a new
leadership team put in place, the company said.

Caterpillar acquired ERA Mining Machinery Ltd., Siwei’s
parent company, for HK$6.15 billion ($793 million) to gain
factories that make underground coal-mining equipment in China,
the world’s largest coal producer. The irregularities found at
Siwei are the latest setback for Caterpillar in China, after it
said in April that it was moving unsold excavators to other
countries amid excess inventory.

“The actions carried out by these individuals are
offensive and completely unacceptable,” Caterpillar Chairman
and Chief Executive Officer Doug Oberhelman said in the
statement. “We moved quickly and decisively to hold the
responsible leaders directly accountable for the wrongdoing.”

The discrepancy found by Caterpillar was between physical
inventory and accounting records, the company said.

Caterpillar fell 1.5 percent to $96.12 at 6:27 p.m.
yesterday in New York after the close of regular trading.

Oberhelman said in September he was positioning Caterpillar
to become the “leader” in China by 2015. The company, which
doesn’t normally detail sales in China, said the country
represented 3 percent of revenue in the first quarter last year.

“We continue to believe that the Siwei acquisition is well
aligned with our strategy,” Steve Wunning, Caterpillar group
president with responsibility for resource industries, said in
yesterday’s statement.